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On Tuesday, Mervyn King, governor of the Bank of England, faced questions from a committee of British MPs over his role in the resignation of Barclays chief executive Bob Diamond and the Libor interest rate rigging scandal.
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“We believe the industry is one more shoe to drop away from major regulatory aggressiveness against the banks,” Michael Mayo, an analyst at Credit Agricole Securities, wrote in a recent note to clients, citing the trading blunder that cost JPMorgan billions – a fiasco that came just as the U.S. presidential election campaign began to heat up.

Banking scandals are not new, of course, nor is distrust of bankers. Charles Geisst, a professor at Manhattan College and the author of a history of Wall Street, notes that some of today’s rhetoric – that financiers are manipulators, that institutions don’t care about the little guy – wouldn’t be out of place in the outcry that followed panics in the 1870s and in 1929.

The difference, he says, is that in the past, people tended to attribute the successes or failures of banks and markets to the actions of individuals (Jay Gould, the financier at the centre of the 1873 panic, was viewed as a hero before crowds began marching up New York’s Fifth Avenue saying they wanted to hang him).

Today the outrage “is more directed at the markets themselves,” Mr. Geisst says. “People are starting to realize that these markets are a little corrupt.”

The source of the problem depends on your perspective. One school says the explanation is culture: Banks have become places where actions are disconnected from consequences in a headlong race for profits. Another asserts the problem is size. Banks have grown so big they can’t police themselves. Still another faults the timidity of regulators, or human nature itself, which produces bad apples, no matter the institution or its size.

Wall Street is well aware of the perils of public criticism and the threat of increased regulation. Lawyers who work closely with the biggest Wall Street banks say there is an effort under way by boards of directors to make sure that compensation rewards good behaviour because they know it is critical to the success of their business.

“People are a lot more attuned to risk and are focusing a lot more on the tone from the top,” says H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP in New York, who is considered the dean of Wall Street lawyers. “Compliance is going to be more closely observed and failure more harshly punished.”

The Libor scandal promises to be a critical test case. Because it touches every region of the world and almost every corner of finance, it has the potential to become a legal nightmare for banks, not to mention a major enforcement challenge for regulators, who are under pressure to prove that banks are not too big to punish.

Banks are already reportedly discussing the possibility of a joint settlement to the numerous probes under way. Central bankers, meanwhile, are set to examine proposals to fix Libor in the fall.

Regulators know their reputation is also on the line. Even as they race to crack down on Libor-related problems, they are under fire for failing to stop them earlier. Financial authorities on both sides of the Atlantic were aware that something was wrong with Libor back in 2008, but took no forceful steps to correct it.

While regulatory bodies in the U.S. were handed new powers in the wake of the financial crisis, it remains to be seen whether they will wield them effectively. Regulators “not having adequate resources is what really worries the life out of me today,” says Harvey Goldschmid, a former commissioner at the Securities and Exchange Commission.

Ramy Elitzur, professor of financial analysis at the University of Toronto’s Rotman School of Management, is equally pessimistic, saying regulators typically come up with rules that deal with the last crisis, not the next. “Whenever you try to close a loophole, you have people figuring out what loopholes are still open.”

The latest scandals show that cleaning up the excesses from the financial crisis – and earlier – remains an ongoing project. And some experts who focus on white-collar crime say that accountability for the financial sector’s misdeeds remains sorely lacking.

“The wheels came off the bus a long time ago,” said William Black, a law professor at the University of Missouri and a former regulator. “This thing has been careening downhill, screeching, sparks flying, for years.”

Mr. Black says Barclays’ behaviour in the Libor mess shares something with the problems at HSBC, which failed to check money laundering despite internal warnings. Both are cases where “bad ethics drives good ethics out of the marketplace,” he said.

If that is allowed to continue, Mr. Black and critics like him say, it will lead to only one place. “For us, it’s the next crisis.”

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